The LEO Perception/Behavior Model
To understand the Constitutional Enterprise business model a person needs to understand a little about human motivation and those features of society that are responsible for prosperity. The LEO Perception/Behavior model provides this understanding. It explains why a constitutional structure is ideally suited to promoting prosperity, both in business and in society as a whole. This page focuses on the following points:
Why Now?Why has the past few hundred years seen more monumental strides for the betterment of humankind than all the previous thousands of years of recorded history?
Motivating Self-ResponsibilitySelf-responsibility is motivated by the perception of legitimacy, equity, and opportunitythe LEO Perception/Behavior model.
Constitutional StructuresA properly designed and maintained constitutional system establishes and preserves the environment which promotes prosperity, both in business society and in civil society.
Free EnterpriseMarkets naturally emerge within the environment protected by a constitutional system.
The Role of CEConstitutional Enterprise will not only help improve our businesses, but it will also promote a better understanding of constitutional and free-market principles and have a positive effect on external societies.
One of the great puzzles of human progress has been: Why now? Why after thousands of years of human misery, starvation, and want have the last few hundred years seen the most unprecedented progress in recorded history? Why have large portions of the human population suddenly advanced from poverty, disease, and starvation, to wealth, health, and plenty?
Some are sure to ascribe this remarkable progress to advancements in technology and science. And while such advancements have undoubtedly been an integral part of the change, can we confidently state that they are the cause of such changes? The steam engine, often identified as the single most important invention of the industrial revolution, was actually invented by Hero, in ancient Rome, more than 2100 years ago. If such technology existed then why didn't the industrial revolution occur much earlier?
And bringing the question closer to home, why are there so many people living today in poverty and disease in the lesser developed countries? Since the technology already exists why isn't it applied to relieve their misery?
Finding answers to our questions begins with the realization that technological advancement, like all other forms of progress, is an effect, not a cause. Like advancements in medicine or deep science, new technology is the effect of an increasingly prosperous society. Only a prosperous society can advance beyond a level of meager subsistence.
A prosperous society amounts to nothing more than the accumulated prosperity of the individual members who make up that society. While the prosperity of individuals may spring from numerous origins; such as inheritance, luck, or plain hard work, maintaining their state of prosperity requires them to act responsiblyfrugal spending, avoiding debt, saving and investing wisely, living within their means, and above all, performing a marketable service. Self-responsibility is, therefore, the source of prosperity, both for individuals and for society as a whole. Thus, all our questions have devolved into one last question: What has happened in the last few hundred years, particularly in developed countries, to motivate individuals to act responsibly?
Motivational theorists strive to understand the origins or sources of human motivation and thus, presumably, to understand what motivates individuals to high performance. With countless subtleties and nuances their theories identify many different sources for the motivation phenomenon. In reviewing their literature three sources appear repeatedly. While identified by various terms they can be roughly subsumed under the titles desire, equity, and opportunity. 
The category desire, as treated in motivation literature, includes such theories as goal-setting theory  and Abraham Maslow's classical Hierarchy of Needs.  Desire theories define needs, wants, or goals as motivators. Although theories such as Maslow's are critically important in the study of human behavior, needs cannot be considered a source of motivation. This is evident in the definition of motivation:
Motivationan "intervening process or an internal state of an organism that impels or drives it to action." 
If needs, or any desires, were the true source of motivation we would expect to find those who are the most highly motivated to be those who have the greatest needs or the strongest desires. But the intensity of their desires achieves nothing if they take no actions to satisfy them. Perhaps in every-day speech we can casually refer to such desires as motivators of action, but they are really the aim of action, not its cause. What is significant, therefore, is not understanding the desires people have, but understanding what impels them to take action to satisfy their desires. [More on this topic.]
To the two remaining theoretical sources of motivationequity and opportunitya third needs to be addedlegitimacy. Individual perception of these three motivational dimensions will be shown to promote self-responsible behavior.
The first dimension we'll examinethe perception of equitycan be thought of as just reward. It is the perception that the consequences of one's actions correspond justly to those actions. Both positive and negative consequences can favorably influence behavior if they are perceived as equitable. This dimension relates to such other motivation models as: Expectancy Theory, Equity Theory, Cognitive Evaluation Theory, and Effort-Net Return Theory. 
The perception of a just reward doesn't always have to be for personal gain. Many large-hearted individuals will work long and hard for the benefit of those who are in need or those they feel are otherwise deserving. But if it appears someone will benefit from the action who does not deserve it, the person taking the action will either avoid performing it or do so in such a way that little real benefit results. This is true in any kind of society, be it a business, a church, or a community.
Our next dimensionthe perception of opportunityencompasses all those aspects of a task which serve to make it appear feasible and practical to achieve. Included are the availability of resources, adequate time to take action, personal contacts, authority, permission or liberty, and ability. A perception of low opportunity means a person feels restricted in reaching his or her goals or desires. This dimension relates to the psychological concepts of internal and external locus of control and to such other motivation models as: Expectancy Theory, Social Learning Theory, Attribution Theory, Schema Theory, and Feasibility Theory.  But if only one concept must be identified with opportunity it would be freedom.
In many of today's business with multi-level top-down hierarchical structures, multitudes of restrictive policies and regulations, highly specialized and restrictive job categories, the perception of opportunity is almost non-existent. Performance declines because the people performing tasks come to think of themselves as powerless. The decision makers at the top have the marginal satisfaction of knowing their authority is acknowledged and their decisions followed, but that is typically where their satisfaction ends. Because they are disassociated with the immediate tasks their decisions often indicate a clear misunderstanding of the situation and their subordinates lose respect for them. Once respect is lost, even those decisions which have merit will not be implemented well. This serves to reinforce the superior's belief that the subordinates cannot be trusted and external control is increased, further diminishing the perception of opportunity.
The dimension legitimacyrelates to the existence of recognized definitions and legal protections of ownership. The term, legitimacy, is used here to denote the degree to which such ownership is perceived to be enforceable and secure.
Throughout human history progress has followed the incremental development of ownership rights, and the corresponding creation of the free market. The natural rights of life, liberty, and propertyaspects of ownership themselveswere central to the 17th and 18th century revolution of thought known as The Enlightenment. The enforcement of contract rights also received early recognition as essential to the orderly exchange of ownership in property. The rights of privacy, speech, association, and intellectual ownership rights, such as copyrights and patents, have a more recent history, but are no less important to the creation of prosperity. And future frontiers of ownership, such as the purity of air, water, and the neighborhood effects of the visual environment are yet to be clearly defined. But, to the degree individuals perceive any of these rights to be secure, market exchange spontaneously occurs. The key point is recognizing that efficient market exchange cannot exist without legitimate ownership.
The Peruvian economist Hernando de Soto has identified the formalization of property rights as critically important toward developing the lesser developed countries. He convincingly argues that a market system is woefully deficient without a formal method for defining, securing, and exchanging property rights. Without such legal measures ownership in third-world countries is uncertain and market exchange is fraught with risks. Informal property can be lost, and no appeal to government is possible. Rather than accept these risks entrepreneurs and investors will pursue more formalized and secure environments elsewhere, and the country remains underdeveloped. 
The interplay of the various perceptions of legitimacy, equity, and opportunity can be represented in a three dimensional matrix (Exhibit 1). While the perception of any one dimension could range infinitely, to simplify the model, each is divided into only two extremeshigh and lowrepresented by positive and negative. Eight octants are thus formed representing eight different types of behavior motivation.
Exhibit 2 depicts the eight octants in tabular form. Together, Exhibit 1 and 2, illustrate the three dimensions and the significant features of the LEO Perception/Behavior Model.
While we are primarily interested in understanding what motivates self-responsible behavior, and therefore prosperity, Exhibit 2 includes all eight of the behavior categories. The model oversimplifies reality, in that no environments really exist with these extremes. Real environments are actually somewhere between the extremes, or combinations of them. Nonetheless, this model is still useful because the behavior of individuals is motivated by their own perception of reality, not by the actual environment.
The LEO model holds that self-responsible behavior is most likely to occur where the individuals involved perceive a legitimacy to act, an opportunity to act, and equity deriving from the action. Below are explanations of each octant.
One additional clarification must be included: LEO is not a deterministic model of human behavior. Individual freedom of choice is, in fact, an integral part of it. Behavior is not determined by perceptions of legitimacy, equity and opportunity, but merely influenced by them. People must be free to make both wise and unwise decisions if their society is to mature into a prosperous one. With perfect, all-knowing, and all-caring individuals almost any social system could succeed. But such people do not exist, even in the most ideal of societies. The challenge is to structure a social system which holds sacred an individual's freedom of choice yet requires each person to feel the weight of his or her own decisions. High perceptions of legitimacy, equity, and opportunity will promote an environment where the strengths of the individuals are productive, their vices self-moderating, and their weaknesses immaterial.
A constitutional structure usually contains both a vertical and a horizontal separation of power. Vertical separation relates to well-defined areas of jurisdiction; such as, local, state, and federal levels. A horizontal separation relates to branches with distinct responsibilities; such as, legislative, judicial, and executive. Here we are most interested in the horizontal separation.
The role of the legislative branch is to codify the ethical limits of social interaction into formal statuteslaws. To the extent these laws provide a clear definition, enforceable protection, and secure disposition of ownership rights a perception of legitimacy is created.
The role of the judicial branch is to adjudicate the crimes and disputes which are bound to arise in a society of free and maturing individuals. Without the judicial function the contractual obligations of exchange would be subject to the whims of the participants, and "getting ahead" through criminality would be the norm. Together with the functions of a free and competitive market, the judicial branch provides to individuals a perception of just rewardequity.
The role of the executive branch is to protect the rights and free activities of the individuals from the aggression of othersthe police function. This includes protecting them from stifling regulation by the government itself. In this respect its primary role is to secure liberty. Government cannot guarantee to everyone equal opportunity, but it can guarantee equal protection. This is as far as government should ethically go toward creating a perception of opportunityleaving the individuals free to create their own opportunities.
Here then are the key elements of prosperity: (1) the formalization of ownership rightslaws, (2) the adjudication of crimes and disputes in pursuit of justice, and (3) the protection of ownership rights from illegal aggression. All that is necessary to promote prosperity is the creation and maintenance of these three elements of a constitutional structure.
In modern industrial society the three perceptions necessary for prosperity are protected and supported by government. In lesser-developed countries these dimensions are not adequately protected. In some cases the government itself is the chief abuser of rights. But the role of government must not be misconstrued. Its role is not to direct the actions of individuals, but merely to protect their rights. In his book Human Action Ludwig von Mises explained the proper function of the state:
The state...does not interfere with the market and with the citizens' activities directed by the market....It protects the individual's life, health, and property against violent or fraudulent aggression on the part of domestic gangsters and external foes. Thus the state creates and preserves the environment in which the market economy can safely operate. 
The historical evolution of constitutional government parallels the evolution of ownership rights and the increasing prosperity of society. As ownership rights were better understood constitutional government came about to protect those rights. Gradually over the centuries the various concepts of natural law were better defined and more thoroughly institutionalized in civil society. The Magna Carta establishing rights of subjects secure from the whims of their rulers. Separated parliamentary, judicial, and royal powers, and the inclusion of checks and balances came into being. As the environment of law, justice, and liberty was better protected progress in all fields increased. Branches of science, medicine, engineering, and industry advanced at an astounding rate. However, it was not until the drafting of the United States Constitution, and the addition of the Bill of Rights, that the necessary structural safeguards first found their way into a cohesive written form. Here they were more difficult to violate and thus more supportive of progress. Like never before in the history of human kind, civilization flourished. Properly structured constitutional systems can rightly be claimed as the primary source of prosperity.
Once a system of Legitimacy, Equity, and Opportunity is established and protected another system spontaneously emergesthe free market. Some people call it free-enterprise, others, the market system, but the meaning is usually the samea system where people are free to exchange goods and services without control by the government or interference from others. No one need plan for the good of society or design an equitable distribution of goods. Indeed, the primary difference between free-enterprise and socialism is the presumption that markets can be designed and controlled. On the contrary, the market is like an organic system that develops naturally; given the proper environment.
While it must be admitted our current system of government is a grotesque mutation of its original design, the successes and failures of the past provide us an excellent tool to understand constitutional structures. As we have departed from the concept of a government chartered to protect individual rights we have come dangerously close to a democratic tyranny, where every day individual rights are sacrificed upon the alter of public good.  Because the United States is over-encumbered with myriad socialistic schemes we are currently in danger of becoming a third-world country ourselves. Any hope for recovery lies in rediscovering the principles of a proper constitutional structure.
Today's large businesses are based on a top-down structure like that used in socialistic governments. People employed in these businesses are steeped in socialistic ideology and naturally come to think of these methods as profitable and reliable. In fact, how can we expect them to visualize a different system or to see a different system as anything but wrong. So when they leave their place of employment and become involved in social or governmental institutions they carry with them the lessons they have learned about organizational theory. It should come as no surprise that they naturally steer the direction of government toward socialism.
Constitutional Enterprise is an attempt to apply constitutional and free-market principles within businesses and thereby spread the concepts of constitutionalism and free-enterprise to ever-larger audiences.
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